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A fear index to predict oil futures returns

Julien Chevallier and Benoît Sévi ()

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Abstract: This paper evaluates the predictability of WTI light sweet crude oil futures by using the variance risk premium, i.e. the difference between model-free measures of implied and realized volatilities. Additional regressors known for their ability to explain crude oil futures prices are also considered, capturing macroeconomic, financial and oil-specific influences. The results indicate that the explanatory power of the (negative) variance risk premium on oil excess returns is particularly strong (up to 25% for the adjusted R-squared across our regressions). It complements other financial (e.g. default spread) and oil-specific (e.g. US oil stocks) factors highlighted in previous literature.

Keywords: Economie; quantitative (search for similar items in EconPapers)
Date: 2014
Note: View the original document on HAL open archive server: https://hal-amu.archives-ouvertes.fr/hal-01463111
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Published in Energy Studies Review, DeGroote School of Business, McMaster University, 2014, 20 (3), pp.1--17. ⟨10.15173/esr.v20i3.552⟩

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Working Paper: A fear index to predict oil futures returns (2014) Downloads
Working Paper: A Fear Index to Predict Oil Futures Returns (2013) Downloads
Working Paper: A Fear Index to Predict Oil Futures Returns (2013) Downloads
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